Non-Qualified Deferred Compensation (NQDC)

NQDC plans allow executives or owners to defer current income to a future date, with employers contributing under customizable vesting for retention, earnings tied to funds, fixed rates, or indices. Deferred amounts and growth remain untaxed until payout, when the employer claims deductions, offering flexibility without service or salary limits. Minimal filing requirements enhance appeal, though FICA timing and non-rollover distributions apply.

Advantages include selective targeting of officers/high earners, unlimited contributions, and tailored vesting, providing benefits beyond qualified plans’ caps. It fosters loyalty via performance-linked growth, deferring full taxation for compounded returns. However, employers delay deductions until payments, exposing balances to creditors pre-distribution.

Overall, NQDC suits businesses seeking customizable, tax-efficient rewards, balancing deferral benefits against payout risks through strategic funding like COLI.